Since August, the UK money supply increased by almost 2 percent a month. During the 12 months up to November, it increased by over 16 percent.
It is hard to reconcile these numbers with the undoubted credit crunch going on in the housing market and the small business sector. The UK economy is seeing both rapid monetary growth and contracting credit.
M4 measures the growth of bank balance sheets. Since the banks aren't giving credit to the real economy, then who is getting all this new money? Yes, the banks are handing out huge amounts of credit to non-bank financial institutions. This is the unregulated shadow banking system which is at the epicentre of today's credit crisis.
Something tells me that this financial crisis is far from over.